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The Cost of Ketchup: Why Businesses Should Avoid Add-On Pricing

Condiments are a cost of doing business, but restaurants risk the wrath of their patrons if they charge for it.

Airlines made a cottage industry out of nickel-and-diming their passengers for any and all amenities associated with their flight, from checked-in luggage to pillows and blankets, with some even contemplating charging you for your carry-on bags.

Such pilfering from customers' pockets has undoubtedly contributed to the low opinion many travelers have of airlines, and though the practice is occasionally found elsewhere -- some McDonald's(NYSE:MCD), for example, charge for extra ketchup -- the market researchers at NPD Group say that if other restaurants are considering doing the same, they ought to think again because they'll be held in low regard, too.

A survey of 2,000 people found that 80% of customers would not be willing to pay an additional fee at restaurants, half of whom would get up and leave the restaurant instead of dining there (though 25% admitted they'd grudgingly pay the fee). Of the remaining 20% who said they would pay, about half said the maximum value to them was just $0.25. So for that quarter's worth of income, the restaurant would pay a much higher price in a tarnished reputation.

Hell's kitchenI once had a manager of a Nathan's Famous hot dog vendor in a food court scold me for pumping out a few squirts of ketchup from the dispenser outside his restaurant because I bought fries from a vendor next door and not a hot dog from him. Since the dispenser was in between the two restaurants, I didn't realize it belonged to Nathan's, but that wouldn't have stopped me as I considered that a service of the food court, not the restaurant. My friends still refer to my tirade that day as my having "an episode."

Another time I visited a Timothy's restaurant on Wilmington's waterfront and ordered a "blackened" chicken dish from the menu. When I got the check, there was an additional $1 fee assessed for the blackening, which the waitress said she didn't know why they charged for a service when the dish was supposed to come that way, but they always did and no one complained before. While I handled that instance better than the one at Nathan's, in both cases I swore off the chains and never returned to either.

According to NPD Group's restaurant industry analyst Bonnie Riggs, "Condiments are viewed as a standard component of the menu items being ordered, rather than an 'add-on.' While some restaurant visitors said they would pay for condiments, there are too many others who would be bothered by the fee and would go someplace else to eat."

Pay as you goNow there is something to be said for a la carte pricing. On one hand, it allows the business to advertise lower prices and permits the consumer to pay only for those services that are used, and in theory a customer should be willing to pay as much for partitioned prices as he is for products that use bundling. But as NPD notes, there are some costs associated with running a business that are simply expected to be absorbed by the business.

While there's no such thing as a free lunch, as all costs are ultimately reflected in the prices charged, The Huffington Post found that those New York City McDonald's that charged a quarter for an extra handful of ketchup packets were only paying about a penny or so a piece for each, leaving its customers feeling they were being harshly dinged. They're viewed as cheap incidentals and ringing the cash register to recoup their cost serves only to build resentment.

Your cell phone, on the other hand, is able to partition its pricing because customers tend to focus mainly on the relatively low bundled monthly plans, while forgetting the value-added data packages, extra lines, and shared minutes programs that actually run up the cost. There's still a level of control over the final tab as all those taxes and universal fees are seen as uncontrollable.

A sunk cost or a sinkhole?Actions have consequences and the survey says that restaurant patrons will take flight if they're treated like airline passengers and have to pay for each amenity. While there is a segment of the population that would willingly accept the additional costs and understand that even ketchup packages represent costs to business, the vast majority don't believe they're worth even a quarter.

How about you? Would you be willing to pay a quarter for extra ketchup? Would you accept a $1 charge to have your meal blackened or a fee to pump condiments at the mall? Let me know in the comments section below if you think this represents nickel-and-diming the customer or a valid way for businesses to recoup real expenses.

Author

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.